Green Design » Socially Responsible Investment

Social Capital Markets 2009: Investing at the Intersection of Public Good & Market Discipline

WorldChanging Team — Wed, 02 Sep 2009 20:48:23 +0000

by Shital Shah

How can a blend of capital and partnerships help address a market failure? During the session on "Investing at the Intersection of Public Good & Market Discipline: The Case of Agricultural Finance," a diverse set of panelists came together to explain the case of agricultural finance and Root Capital's approach to providing public good using market discipline. Moderated by a leader in the field, Antony Bugg-Levine (Managing Director, Rockefeller Foundation), the panel included Namrita Kapur (Vice President of Strategic Partnerships, Root Capital), Richard Lautch (Treasurer, Starbucks), Preston Pinkett (Head of Prudential's Social Investment Program), and Robert Schneider (Senior Alliance Advisor, USAID Global Development Alliance).

Ms. Kapur explained Root Capital's three-pronged approach to finding the right mix of public good and financial investments. Root Capital offers a lending model for the "missing middle" using the strategy of "finance, advise, and catalyze" for clients that range from coffee farmer cooperatives to artisan associations. An example she offered was on cocoa farming in Tanzania. Cocoa farmers received assistance from local NGOs, but were still missing credit. Root Capital did their due diligence and found that all was well with the cooperatives, except that farmers were not good at bookkeeping. Before investing (finance), Root Capital offered training on technical services (advise), and worked with a range of global organizations (catalyze). The result of these efforts was 1000% (!) percent growth in sales by the end of the second year.

The range of organizations that Root Capital catalyzes includes partners that have a natural interest in their work with a segment of their clients, such as Starbucks, to organizations that are looking to add social impact to their financial investments, such as Prudential Financial. In fact, Starbucks just announced [SS1] an additional $2 million investment into Root Capital to improve the quality of life for farmers in Africa and Latin America, according to a statement of founder William Foote at another session during SoCap. For Prudential, as Mr. Pinkett pointed out, investing in Root Capital makes sense because they offer a business model to move people out of poverty and have the ability to see something where a commercial lender would see nothing. Finally, USAID sees Root Capital as an appropriate partner as part of their effort to create public private partnerships, and can offer credit guarantees to make sure that the capital evolves.

Part of an emerging theme throughout SoCap seems to focus on metrics, measurement, and monitoring, and this breakout session was no exception. Mr. Lautch explained that certain metrics, such as number of farmers, average holding size, and growth plans can be measured, but it would be useful to know the end impact to farmers and their families. Pulling the various partners onto the same panel provided an interesting perspective that each one needed to make the link for their organizations on why investing in Root Capital would bring the right mix of financial and social return. For each individual organization, the link was slightly different, but collectively, the importance of partnerships highlighted a common theme.

The debate on metrics and the healthy tension in discussion around the proper rates charged for risk revealed that numbers are an obvious driver in decision making; however, it was not lost that every organization on the panel was also raising questions on the level of social impact that their investments could have. Mr. Pinkett made the simple but crucial statement that you want to actually care about who you are lending money to - they are not just clients, but an important population to bring out of poverty.

While this particular breakout session focused on agricultural finance, the same blend of capital and partnerships could go a long way for many other issues. As Mr. Bugg-Levine touched on, the key is about addressing the conflicting agenda of building bridges to entry and simultaneously receiving money on return - a feat that organizations like Root Capital, along with their partners, are learning to accomplish around the world.

This piece originally appeared on nextbillion.net

Help us change the world - DONATE NOW!

(Posted by WorldChanging Team in Socially Responsible Investment at 12:48 PM)

Wokai.org: New launch parters with MFIs

WorldChanging Team — Thu, 09 Oct 2008 18:16:47 +0000

By Erica Lee Schlaikjer

With about 300 million people living below the poverty line in China, microfinance -- most commonly defined as small loans for impoverished individuals to help them achieve financial self-sufficiency -- is an attractive option.

Wokai.org, "a capital-contributing microfinance intermediary," is trying to bring money to Chinese entrepreneurs who want to set up their own small businesses, like dumpling shops, fruit and veggie stands and animal husbandry operations.

Wokai, which means "I start" in Chinese, fosters entrepreneurship and fights poverty by raising loan capital online from individual contributors for microfinance institutions (MFIs) in China. Its goal is to expand financial opportunities for the country's poor (and mostly rural) population. Though its primary goal is fundraising, Wokai also provides "capacity building" for microfinance organizations, which can mean anything from emotional support for first-time borrowers to computer training for loan managers.

When Wokai launches its new website in mid-November, it's going to be like Facebook, Kiva and Wikipedia combined, says 24-year-old Courtney McColgan, one of the co-founders.

"While we are a fundraising platform, we're also an information platform, and we're building a community around China microfinance in the United States," McColgan says. She started the Internet-based nonprofit in the fall of 2006 with fellow American Casey Wilson. The two met while studying advanced Chinese at Tsinghua University, and since then, they have set up Wokai's headquarters in Beijing and established three U.S. chapters: Seattle, San Francisco and New York. For now, they're still recruiting a replenishable stream of interns and volunteers to help raise awareness about microfinance in China, as well as research potential lenders and set fundraising goals.

How does it all work? According to the website,

Wokai partners with local MFIs which identify and screen potential microentrepreneur clients. Selected clients are then posted on the Wokai website through profiles that outline their business ventures and loan request. Contributors browse these profiles, select who and how much to finance, and then transfer money to Wokai through our online payment system. Once funds are transferred, Wokai distributes this loan capital to partner MFIs for allocation to microentrepreneurs. At the end of the loan cycle, partner MFIs collect loan repayments and re-issue loans.

So it's kind of an online recycler of microfinance loans: your contribution gets used multiple times to help more than one person. The average Wokai loan is about $300, which is usually paid back between six months and one year. McColgan says there is a high success rate of repayment.

Wokai was set up as an "intermediary" because of legal and governmental restrictions in China. As McColgan says, "[MFIs] are not illegal, but they're not legal," so they're not given an official status. In other words, they're "under the black curtain." As a result, MFIs cannot mobilize funds through savings deposits and active and capital markets. And grants quickly drain away because of operational inefficiencies and a lack of support after an initial fundraising period. That said, Wokai connects with local "field partners"--based on certain criteria--to allocate the funds to Chinese borrowers.

"Our job is to raise money abroad, bring it in, and funnel it through their system and give contributors the opportunity to see that people can pay loans in China," McColgan says.

And that's where the Internet social networking microfinance mash-up concept comes into play. Wokai will be similar to Kiva in that it highlights the individual aspect of microfinance by featuring profiles of both entrepreneurs and lenders to facilitate face-to-face engagement; in other words, it'll empower users to pick and choose where their money's going. Also, it'll be like Facebook because users can network with each other, start discussions and share content. And, finally, it'll be like Wikipedia because volunteers will edit and translate English content into Chinese in order to create a fully bi-lingual platform, catered to field partners in China, as well as U.S. chapter staff.

Currently, the nonprofit is fundraising for $50,000 to cover operational costs through April, which will include the costs of training, evaluating and coordinating with its field partners in China, as well as paying its staff and rent. To listen to a 5-minute podcast with the co-founders, click here.

Erica Lee Schlaikjer is the founder of ResponsibleChina.com, a blog about environmental sustainability, corporate social responsibility and social entrepreneurship in Greater China. She is based in Chicago. Email her erica@responsiblechina.com.

Photo credits: Wokai.org

Help us change the world - DONATE NOW!

(Posted by WorldChanging Team in Socially Responsible Investment at 10:16 AM)